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When the previous fiscal year ended on September 30, 1995, the Democratic President and the Republican-controlled Congress had not passed a budget. A majority of Congress members and the House Speaker, Newt Gingrich, had promised to slow the rate of government spending; however, this conflicted with the President's objectives for education, the environment, Medicare, and public health.[1] According to Bill Clinton's autobiography, their differences resulted from differing estimates of economic growth, medical inflation, and anticipated revenues.[2]

When Clinton refused to cut the budget in the way Republicans wanted, Gingrich threatened to refuse to raise the debt limit, which would have caused the United States Treasury to suspend funding other portions of the government to avoid putting the country in default.[2]

Clinton said Republican amendments would strip the U.S. Treasury of its ability to dip into federal trust funds to avoid a borrowing crisis. Republican amendments would have limited appeals by death-row inmates, made it harder to issue health, safety and environmental regulations, and would have committed the President to a seven-year budget plan. Clinton vetoed a second bill allowing the government to keep operating beyond the time when most spending authority expires. A GOP amendment opposed by Clinton would not only have increased Medicare Part B premiums, but it would also cancel a scheduled reduction. The Republicans held out for an increase in Medicare part B premiums in January 1996 to $53.50 a month. Clinton favored the then current law, which was to let the premium that seniors pay drop to $42.50.[3]

Since a budget for the new fiscal year was not approved, on October 1 the entire federal government operated on a continuing resolution authorizing interim funding for departments until new budgets were approved. The continuing resolution was set to expire on November 13 at midnight, at which time non-essential government services were required to cease operations in order to prevent expending funds that had not yet been appropriated. Congress passed a continuing resolution for funding and a bill to limit debt, which Clinton vetoed[1][4] as he denounced them as "backdoor efforts" to cut the budget in a partisan manner.[2]

On November 13, Republican and Democratic leaders, including Vice President Al Gore, Dick Armey, and Bob Dole, met to try to resolve the budget and were unable to reach an agreement.[2][5]

On November 14, major portions of the federal government suspended operations.[4] The Clinton administration later released figures detailing the costs of the shutdown, which included payments of approximately $400 million to furloughed federal employees who did not report to work.[6]

The first budget shutdown concluded with Congress enacting a temporary spending bill, but the underlying disagreement between Gingrich and Clinton was not resolved, leading to the second shutdown.

The second shutdown lasted 22 days as White House and Congressional negotiators worked out a balanced budget agreement that included modest spending cuts and tax increases.[7]

During the crisis, while being questioned at a Christian Science Monitor breakfast by Lars-Erik Nelson, Gingrich made a complaint that, during a flight to and from Yitzhak Rabin's funeral in Israel, Clinton had not taken the opportunity to talk about the budget and Gingrich had been directed to leave the plane via the rear door.[8] The perception arose that the Republican stance on the budget was partly due to this "snub" by Clinton,[9] and media coverage reflected this perception, including an editorial cartoon which depicted Gingrich as an infant throwing a temper tantrum.[10] Opposing politicians used this opportunity to attack Gingrich's motives for the budget standoff.[11][12] Later, the polls suggested that the event damaged Gingrich politically[13] and he referred to his comments as his "single most avoidable mistake" as Speaker.[14]

A 1995 ABC news poll had Republicans receiving the brunt of the blame with 46% of respondents compared to the 27% that blamed Clinton.[15] Clinton's Gallup approval rating stood at 51% in the early days of the December shutdown,[16] but fell significantly to 42% as it progressed into January.[16] Once the shutdown had ended, however, his Gallup approval ratings rose to their highest since his election.[16]

The shutdown also influenced the 1996 Presidential election. Bob Dole, the Senate Majority Leader, was running for President in 1996. Because of his need to campaign, Dole wanted to solve the budget crisis in January 1996 despite the willingness of other Republicans to continue the shutdown unless their demands were met. In particular, as Gingrich and Dole had been seen as potential rivals for the 1996 Presidential nomination, they had a tense working relationship.[17][18] The shutdown has also been cited as having a role in Clinton's successful re-election in 1996.[18]

According to Gingrich, positive impacts of the government shutdown included the balanced-budget deal in 1997 and the first four consecutive balanced budgets since the 1920s. In addition, Gingrich stated that the first re-election of a Republican majority since 1928 was due in part to the Republican Party's hard line on the budget.[19][20] The Republican Party had a net loss of three seats in the House in the 1996 elections but retained a 227-206 seat majority. In the Senate, Republicans gained two seats.

A 2010 Congressional Research Service report summarized other details of the 1995–1996 government shutdowns, indicating the shutdown impacted all sectors of the economy. Health and welfare services for military veterans were curtailed; the Centers for Disease Control and Prevention stopped disease surveillance; new clinical research patients were not accepted at the National Institutes of Health; and toxic waste cleanup at 609 sites was halted. Other impacts included: the closure of 368 National Park sites resulted in the loss of some seven million visitors; 200,000 applications for passports and 20,000 to 30,000 applications for visas by foreigners went unprocessed each day; U.S. tourism and airline industries incurred millions of dollars in losses; more than 20% of federal contracts, representing $3.7 billion in spending, were affected adversely.[21]

^"Armey replied gruffly that if I didn't give in to them, they would shut the government down and my presidency would be over. I shot back, saying I would never allow their budget to become law, 'even if I drop to 5 percent in the polls. If you want your budget, you'll have to get someone else to sit in this chair!' Not surprisingly, we didn't make a deal." Clinton wrote, describing the mood of the discussion. Page 681, My Life.